President Obama could change the tax treatment of carried interest with a phone call to the Treasury Department. But the White House will need a precise understanding of the regulatory landscape to make a change that is fair, easy to administer, and will hold up in court.

The administration has increasingly relied on executive branch rule-making authority to make policy without waiting for a gridlocked Congress to act. The White House has made significant changes to education policy, immigration policy, environmental standards and climate change policy, and, most recently, student loans. And it has the legal authority to unilaterally change the tax treatment of carried interest. ...

A recent article by David Lebedoff called on the White House to act unilaterally, as it has done in other areas. The article identifies a 1993 revenue procedure as the source of the problem under current law. Mr. Lebedoff, who is a respected author and lawyer but not a tax expert, misses the mark a bit in his legal analysis. But he is dead right in suggesting that the administration may consider unilateral action. ...

If the administration should follow this path, fund managers would pay tax at ordinary rates, just like lawyers, accountants, bankers and other service providers.

Out of deference to Congress, the Treasury Department has traditionally avoided making policy in areas where the legislative branch may act. “But when the legislative process is as broken as it has become today,” said Daniel N. Shaviro, a law professor at New York University, “it’s simply inevitable that administrations will care less about such comity, and be more willing to advance their policy views in controversial areas through the unilateral exercise of regulatory authority.”